MotorcycleBoy wrote:If anything it was perhaps my pendantry at play - mainly from a formal definition of flow. That is, if I pay my kids' school 50 quid then my balance declines by 50, so I'd (if I felt incredibly abstract that particular day) express that the 50 flowing[*] from my account to the schools.
However, I'll reread your last words sometime and chat later (busy week this one) and probably over a PM.
Matt, I'd prefer to keep this public so have posted a new thread for the topic.
It's not pedantry, it's the substance of the matter.
Your description above is correct as far as it goes, but incomplete. First, we are talking about a double-entry accounting system, so your kids' school liability to you rises by 50 while your prepayments asset increases by 50.
Second, and more relevant to the topic: your view of the transfer of cash as a flow only works from the perspective of a single party to the exchange. Once you view yourself and the school as a closed system, a black box, then the flows disappear completely and just the ownership of the assets has changed. This is a specific example of the general principal that the properties of an group may be different from the properties of the individuals comprising the group. [See also "Fallacy of composition".]
It can be seen more easily with your earlier example. You talked about investors selling their Apple shares. I asked to whom. You didn't answer, but the fact is they are sold to other investors! Since those other investors are also investors, they are in fact one and the same class. i.e. You cannot say that "investors have sold their apple shares": there is no-one to sell to except Apple share investors!
So in fact there is always the same quantity of Apple shares held by investors, no matter how much or how little selling [or buying] those investors do. Similarly there is always the same amount of money held by the investors no matter what price the shares are traded at. What changes is the VALUE that the investors ascribe to the shares and money.
To reiterate: you cannot say that "investors" are selling AAPL**. You can say that momentum investors are selling to value investors, but then equally value investors are BUYING those shares (from the momentum investors). In aggregate [composition] no net shares have been sold or bought -- they have merely moved from one owner to another.
GS
[**For simplicity we assume throughout that there is no net issuance of shares by the company during these transactions.]